Does the digital economy create more economic value than we think?


It's long been an accusation of the digital economy that it hasn't tended to translate into the kind of productivity improvements that feed their way into GDP growth. Indeed, economist Robert Solow famously said in 1987 that the computer age was everywhere except for productivity statistics.

The so-called Solow Paradox has continued into the web age, but opponents argue that current GDP measures don't accurately capture the value of products and services that, while valuable, are often free to consume. Erik Brynjolfsson adopted this argument in recent research, which saw around 40,000 Facebook users quizzed on the digital products they consume.

The true value

Volunteers were asked how much they would need to be paid to stop using various digital services. For Facebook users, for instance, they would require around $100 per month to stop using the platform. The researchers claim this provides some of the hidden value of these platforms to society, with the potential for a couple of trillion dollars to be added to the official GDP figures.

GDP has long been criticized as a blunt measure of economic value, with a wide array of things excluded from the measure. The typical American spends over 20 hours a week online, which is one of the more glaring omissions from the official stats.

In total, the researchers attempted to accurately gauge the value of ten digital goods: Twitter (now X), Instagram, WhatsApp, Snapchat, TikTok, Google Search, Google Maps, YouTube, Facebook, and Amazon shopping.

What we rate

The study examined how much people value different online services. It measured this by asking participants how much they'd be willing to give up using these sites for a month.

Surprisingly, people valued Google Search the most, even more than hanging out with friends face-to-face. Next in line were YouTube and Google Maps. On the flip side, Twitter and Snapchat were the least liked, and Facebook fell somewhere in between. To figure out the dollar value of these services, researchers used the data on how much money people would accept to quit using Facebook for a month.

This study, done in collaboration with Meta (the company behind Facebook, Instagram, and WhatsApp), found that just these 10 digital services bring in over $2.5 trillion every year. That's around 6% of the total economy in the 13 countries they studied.

“The magnitude of the effect was striking,” the researchers explain. “It tells us that measuring the value of digital goods is not just a theoretical exercise: This is making a first-order difference in billions of people’s lives.”

Reducing inequality

Interestingly, the data found that countries with somewhat lower GDP levels typically got more value from these digital goods than their wealthier peers. What's more, the same applies to lower-income people within each of these countries.

"At first, we thought that was sort of surprising, but then we realized, if you don’t have much money, it makes sense to consume and get a greater benefit from free goods,” Brynjolfsson says. “That means an important implication is that digital goods tend to reduce inequality within countries and between countries.”

The study is notable because it not only covers a wider range of digital products and services but also speaks to a much broader range of people, both in terms of raw numbers and geographies. Not content with this, however, the researchers plan to further expand their work to cover over 800 different digital goods.

Alt metrics

Ultimately, the goal is to create a new metric for measuring the contribution goods make to our well-being, called GDP-B. The researchers believe that this measure, rather than GDP, which only covers how much things cost, will provide a better picture of our economic activity.

The researchers believe that a broader and more representative understanding of value could have wide-ranging implications, from how legislation is formed to how R&D is funded. It could also play a crucial role in tackling issues like inequality.

"If you want to further reduce income inequality, one tool is improving the nation’s digital infrastructure so more people have access to free digital goods,” they explain.

With digital goods and services only likely to become more important in our lives, we must improve our ability to capture their value, even when the financial cost is zero. The GDP-B might be just the kind of metric that will allow us to do that.